Better tax mop up to help Centre meet FY23 fiscal deficit target of 6.4%, says new report

Nov 11, 2022

Synopsis
​​The deficit is likely to be contained at the budgeted target of 6.4% in the current fiscal year, offset by better than estimated tax revenue buoyancy, higher nominal GDP growth, and lower capex loan to states.

India's government is likely to meet its fiscal targets on the back of better tax collection, says a new report. The key risks to fiscal deficit include higher subsidies, lower divestment proceeds and excise duty cuts, BofA Securities pointed out in its findings.

The deficit is likely to be contained at the budgeted target of 6.4% in the current fiscal year, offset by better than estimated tax revenue buoyancy, higher nominal GDP growth, and lower capex loan to states.

BofA Securities had expected the Centre to undershoot the fiscal deficit target when the Budget was presented at 6%, but has since revised the number owing to multiple factors including the outbreak of the Ukraine war, which placed upside risks to an already elevated subsidy bill.

The report estimates some savings on the capex front owing to lower-than-expected loans and advances to the states. In addition, the brokerage said the fiscal outlook was further dimmed by revenue foregone due to the excise duty cut on petrol and diesel and potentially lower-than-planned divestment proceeds.

Though in absolute terms, the fiscal gap will be turning out to be higher than budgeted, it said the number will be contained at or under the target given that the government has used up only 37.3% of the full year borrowing target by September.

This is because in spite of the expenditure run rate being a shade higher than the median expenditure run rate which is typical of the first half, sharply higher tax revenues led to this outperformance, the report said.

Further, the brokerage projected the net tax revenue to exceed the budget estimate by Rs 1,15,000 crore while non-tax revenue may fall short by Rs 20,000 crore.

As per the report, on the expenditure side, the subsidy bill is expected to exceed the budget estimate by Rs 2,15,000 crore, and the capex falling short by Rs 80,000 crore mainly due to lower loans and advances to the states. This will lead to the total expenditure exceeding the budget estimate by Rs 1,35,000 crore.

This implies that the absolute fiscal deficit exceeds the budget estimate by Rs 55,000 crore. But the higher-than-budgeted nominal GDP growth will help keep the fiscal gap at 6.4% of GDP, according to the report.

[The Economic Times]